Online Console Gaming at the Tip of the Iceberg

September 18, 2003

The end of summer always seems like a good time to assess where things are with respect to the burgeoning online console game market.  This time last year DFC Intelligence expressed the opinion that “widespread online gaming via the console systems will be some time in coming.  For at least the next five years the PC should be the main platform for online games.”  (see article).  So now that we have a year of console online gaming under our belt we thought it would be the time to reassess our past analysis.

To make a long story short, our basic analysis from a year ago holds steady.  DFC Intelligence forecasts modest but steady growth of online console gaming for the next three years.  This is likely to be followed by a rapid growth spurt starting in the second half of 2006.  From mid-2006 to the end of 2008 DFC Intelligence forecasts the number of online console gamers to more than triple to over 40 million worldwide.  Right now we are just seeing the tip of the iceberg for console online gaming.  This is a time of learning and experimentation for both consumers and providers.  A growing number of console households may be going online, but the numbers are still extremely small when compared with the overall game industry. 

Nevertheless, the past year has seen some positive signs for the growth of online console gaming.  To summarize where the market is at in fall 2003:

• The end of August was the first anniversary of the launch of the PlayStation 2 Network Adaptor.  In its first year, Sony Computer Entertainment America shipped over one million Network Adaptor units and claims nearly 800,000 PlayStation 2 users with online connectivity.
• The PlayStation 2 with a network adaptor and a copy of ATV Offroad Fury 2 is currently available as a bundle for a price of $199.
• EA’s Madden NFL 2004 for the PlayStation 2 had very impressive sales of over 2 million units in its first three weeks on the market.  According to EA, by the first of September, 200,000 Madden owners registered to play online via their PlayStation 2 systems.
• In the short term, the biggest new online product for the PlayStation 2 will be Square Enix’s Final Fantasy XI online only game.  The game is expected to launch in March 2004 with the hard drive add-on for the PlayStation 2.  The price is expected to be $99.
   
• For its Xbox Live service, which launched in November 2002, Microsoft reported 500,000 subscribers by the end of fiscal 2003 (June 30).  Microsoft is forecasting 1 million subscribers by the end of fiscal 2004.
• The Xbox is now available in a bundle that includes the games Tetris Worlds Live and Star Wars: The Clone Wars, plus two months of Xbox Live service, all for $179.
• In the short term, the biggest new online product for the Xbox will be Halo 2 scheduled to launch sometime in the spring of 2004.

The first year for leading console systems to go online was a modest success.  Sony and Microsoft both solidly beat their initial forecasts.  Of course, those initial forecasts were purposely extremely low to limit expectations.  On the other hand, the take-up of online gaming seems to have flattened out somewhat.  The market appears to be waiting for the next “killer aps” which won’t appear until spring 2004 with the release of Final Fantasy XI and Halo 2.

Going forward the biggest positives for console online gaming are 1) it actually works and can provide a very solid experience; 2) both the PlayStation 2 and the Xbox now provide online access right out of the box and 3) games like Madden NFL 2004 show that the console systems open a whole new audience to online gaming.  A sports game like Madden represents a new audience for online gaming.  Meanwhile, games like Final Fantasy XI (massively multiplayer role-playing) and Halo 2 (first-person shooter) are designed to appeal to the more traditional online gamer.

The next big test will be seeing how many people come back for seconds.  Starting in November, Microsoft will see the memberships of the initial Xbox Live subscribers start to come up for renewal.  It will be very important to watch how many subscribers renew at the rate of $50/year or $6/month.  On the PlayStation 2 side, one big barometer is likely to be how many Madden players come back on a regular basis.  It is easy to try an online game once, but success requires users coming back on a regular basis.

Finally we must emphasize that online console gaming is still in its infancy and thus expectations must be kept in check.  Even as DFC Intelligence forecasts rapid growth starting in 2006, we predict that even by 2008 the number of PC online gamers will far exceed the number of console online gamers (see chart below).  However, we also predict that those console online gamers will spend significantly more hours and money online than their PC counterparts.  This is because a large portion of PC online gamers are what we call “casual” gamers who only play games because they happen to be online and the games are free.  In contrast, a console online gamer is almost by definition what we classify as a “moderate” or “hard-core” gamer.  These are users that spend significant time and money on their gaming hobby.  So by 2008, DFC Intelligence forecasts that while console online gamers will only make up 20% of online game users, they will account for 38% of online game usage (see charts below).

From the DFC Intelligence report The Online Game Market 2003

As part of our ongoing research efforts DFC Intelligence is delivering free monthly briefs on hot topics in the interactive entertainment and video game industry.  You (or a colleague of yours) have signed up to receive these briefs.

DFC Intelligence’s research services provide detailed strategic analysis of the interactive entertainment industry. 

A sample of recent reports on the video game and PC game market include::

Worldwide Market Forecasts for the Video Game and Interactive Entertainment Industry Released April 2003, this 500+ page report contains complete forecasts for all individual console and portable game platforms by region (Asia, Europe/PAL, U.S.) through 2007.  Also included are PC game forecasts and historical sales figures.  The report has several scenarios for future market growth including an analysis and forecasts for new systems from Sony, Microsoft and Nintendo, as well as new portable game systems.

Market Leaders in the Video Game and Interactive Entertainment Industry This 600+ page report profiles major companies in the interactive entertainment industry. Each individual company report is about 15-40 pages and has an historical background, financial overview, product analysis and a frank assessment of the outlook for that company. 

The Online Game Market This 475 page report contains a comprehensive analysis of the online gaming market.  Includes current sales trends, market forecast, and in-depth company profiles.

Other DFC reports include The Business of Video and Computer Games, The State of Game Technology, The Video Game and PC Game Consumer and The Executive Interview Series.

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